Hmmm...Treasury traders appear a bit skittish.
Why?
Look! Stocks ticked up off their lows and 10 yr traders panicked a bit....
The entire marketplace is in search of direction. Stocks have been range bound, essentially trendless capped by resistance, held together by support. The yield curve has flattened 40bps from a steepness of 280bps, as measured by 2s vs. 10s, since early June. Fundamentals are mixed as economic indicators tell a spotty story...some show signs of government funded growth while others are just beginning to slow their state of freefall...stabilization is occurring, but the market has no idea whats next!
Hence the range bound, trendless trading activity. So why are Treasury traders skittish today? Stocks are moving off their lows...the yield curve's recent rally has been quick, to the point where many believe a correction is due (monthly techs still bearish). If stocks have indeed found their lowpoint....then TSYs will see cash flow out of the yield curve...and traders wont fight the momentum! (Remember that whole "crowd fleeing a burning building" analogy?)
Plain and Simple: quarter end is behind us. TSY window dressing positions can be unwound, but not before getting a better indication of "WHATS NEXT".
Do stocks move higher or does the stagnating labor market eat away at spending? Does record affordability spark a summertime home buying spree or does housing drag the economy down? Does a flight to quality bid push yields lower or does the S&P test 1,000?
Couldnt tell you at the moment...but the after hours action indicates the street has an itchy trigger finger to shed duration in the event stocks start to rally (based on activity in options market). The market craves an answer to "WHATS NEXT!!!
Economic data and earnings will provide a glimpse into "WHATS NEXT"...for now the market sets up for Non Farm Payrolls: The Employment Situation Report. Thursday at 830AM. Things should get volatile/choppy leading up to it....
The FN 5.0 didnt move much but is nonetheless lower on the day....101-27 support has become 101-27 resistance.
2s vs. 10s: 241bps
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